JPMorgan takes Tesla to court over Elon Musk’s 2018 tweets ⁠— demands $162 million

• JPMorgan has filed a lawsuit against Tesla over breach of contract.
• The bank has claimed that the automaker owes it over $162 million.
• The issue began when Elon Musk tweeted in August 2018 that he was taking the company private.

JPMorgan Chase & Co has filed a lawsuit against Elon Musk-led electric car maker Tesla for $162 million. The American investment bank has accused Tesla of “flagrantly” breaching a contract related to stock warrants because Musk’s tweets triggered a rally in the share price.

According to a Reuters report, the complaint has been filed at the Manhattan federal court.

As per the complaint, Tesla had sold stock warrants to JPMorgan in 2014 and it was required to deliver shares or pay cash to the investment bank if its share price went above the contractually set “strike price” upon their expiry in June and July 2021.

Musk’s “going private” tweet triggers strike price reduction

The investment bank further said that it had the authority to adjust the strike price and it was reduced substantially following Musk’s tweet on August 7, 2018 that he might take Tesla private at $420 per share and he had secured the funding to do so.

Musk had abandoned the idea soon after and announced that the company will remain public, after which, JPMorgan reversed some of the reduction in the strike price.

Tesla’s share price increased by almost 10 times by the time the warrants expired in June and July 2021. JPMorgan claimed that this required Tesla to deliver either the shares of its stock or cash and the company’s failure to do so amounts to a default.

While the companies had agreed to an original strike price of $560.6388, it was reduced to $424.66 after Musk’s tweet. After the company announced it would remain public, the strike price was increased to $484.35 and Tesla was informed about the new strike price.

Tesla stops talking to JPMorgan

As per the lawsuit, Tesla “protested that no adjustment should be necessary at all because it had so quickly abandoned its going-private plans,”. After several conference calls and the bank explaining its calculations, Tesla “did not provide any specific objection” to these explanations.

JPMorgan added that Tesla stopped talking to the investment bank for six months after the conference calls.

In February 2019, Tesla’s lawyers sent a letter to the investment bank alleging that the strike price adjustments were “unreasonably swift and represented an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock.” The bank responded by rejecting all the allegations and the two sides stopped talking for two years.

Another adjustment was made to the strike price in August 2020 to account for Tesla’s stock split, bringing it down to $96.87. However, Tesla once again did not respond to this adjustment.

When the warrants neared expiry, Tesla’s share price was well above the strike price. After JPMorgan contacted Tesla to cash out, the automaker “renewed its objections to the Adjustments.”

While the company ended up settling some shares with the bank, “refused to settle in full,” triggering an “early termination” clause.

As per the bank, Tesla owed 2,28,775 shares when the contract was terminated and these shares are worth over $162 million.

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